No Closing Cost refinances are back!
Back in April I wrote a blog about No Closing cost mortgages actually being more costly than a zero point or 1 point mortgage. This was due to the small spread between rates. As the market has become healthier over the past 5 months, spreads have widened. This has made NO CLOSING COST refinances an attractive option once again. Let's take a look based on today's mortgage rates.
I am going to assume good credit, a $300,000 loan and 70% loan to value and $2800 in closing cost:
NO POINTS 4.875% = $1587 monthly principle and interest payment
NO CLOSING COSTS REFINANCE 5.125% = $1633 monthly principle and interest payment
To figure out which option is better for you, you must calculate the time it would take to recover the cost at the lower interest rate. The difference in payments is $46 per month. Take the cost and divide by the savings to calculate how many months it will take to recover your cost
2800/46 = 60
It would take 60 months to incur enough savings at the lower interest rate to offset the cost. In this scenario, I would recommend the NO COST refinance option.
I use the following as a general rule of thumb when deciding when to pay cost and when not to:
If you will recover your cost in :
- 36 months or less : PAY CLOSING COST
- 48-59 months : This is a judgment call, If you are going to be in your home for longer than 5 years, you may want to pay the cost. If you anticipate being in your home less than 5 years, accept the no closing cost refinance option
- Greater than 60 months: I recommend a NO CLOSING COST refinance
Keep in mind that every loan is different. Every one of my clients has individual needs. I take the time to go over every option to help you make the decision that is right for you.
If you fall into the group that believes that they will sell or refinance within the next 5 years, you should give 5/1 ARM's a good long look. Today it is possible to obtain a 5/1 ARM as low as 3.5%. That is not a typo. You can even obtain a no cost 5/1 ARM around 4.5%.
While shopping for your loan, I cannot stress more to seek out a full time mortgage professional that is interested in helping you and not just selling you. Contact me today for a no obligation mortgage analysis. I offer No closing cost refinances in Maryland, Virginia and Washington DC
Choice Finance Corp.